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Discuss the three project cost management planning
processes
Create a cost management plan, cost estimate, basis
of estimates, cost baseline, and project funding
requirements
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Source: Project Management
Institute, Inc., A Guide to the
Project Management Body of
Knowledge (PMBOK Guide) –
Sixth Edition (2017).
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Includes the processes involved in planning, estimating,
budgeting, financing, managing and controlling costs so
that the project can be completed within the approved
budget.
Is primarily concerned with the cost of resources
needed to complete project activities.
Should consider the effect of project decisions on the
subsequent recurring cost of using, maintaining, and
supporting the product, service or result of the project.
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Is the process of defining how the project costs will be
estimated, budgeted, managed, monitored, and
controlled.
Key benefit: it provides guidance and direction on how
the project costs will be managed throughout the
project.
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Units of measure, such as staff hours or days or a lump sum
amount, currency to be used, inflation assumptions, etc.
Level of precision for cost estimates, such as how to round
numbers
Level of accuracy, such as +/-10%
Organizational procedure links
Control thresholds for monitoring cost performance, such as a
percentage deviation from the baseline plan
Rules of performance measurement, especially if earned value
management is used
Reporting formats and frequency for cost reports
Additional details about cost activities, such as strategic
funding choices, procedures to account for currency
fluctuations, and procedures for recording costs
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Project teams normally prepare cost estimates at
various stages of a project, and these estimates
should be fine-tuned as time progresses
It is also important to provide supporting details for
the estimates, including ground rules and
assumptions (sometimes called the basis of
estimates)
A large percentage of total project costs are often
labor costs, so it is important to do a good job
estimating labor hours and costs
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The process of developing an approximation of the cost
of resources needed to complete project work.
Key benefit: it determines the monetary resources
required for the project.
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Analogous estimates, also called top-down estimates, use the
actual cost of a previous, similar project as the basis for
estimating the cost of the current project. This technique
requires a good deal of expert judgment and is generally less
costly than others are, but it can also be less accurate
Bottom-up estimates involve estimating individual activities
and summing them to get a project total. This approach can
increase the accuracy of the cost estimate, but it can also be
time intensive and, therefore, expensive to develop
Parametric modeling uses project characteristics (parameters)
in a mathematical model to estimate project costs
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See the detailed steps, ground rules, and
assumptions that Kristin’s team used for developing
their cost estimate
Summary information was documented in a cost
model
Just as projects are unique, so are cost estimates
Consult with internal and external experts and
organizations for assistance
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Assumptions:
•Internal labor rates include benefits and overhead. Average hourly rates based on skill levels and
departments.
•External labor rates are based on historical average; may change as contracts are awarded.
•Non-labor costs include purchasing licenses for using training materials, books, CD/ROMs, travel
expenses, etc.; may change as contracts are awarded.
•Reserves are calculated by taking 10% of the subtotal for the estimate. These contingency reserves are
based on known risks.
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Project cost budgeting involves allocating the project
cost estimate to tasks over time
The tasks are based on the work breakdown
structure for the project
The main goal of the cost budgeting process is to
produce a cost baseline, or time-phased budget, that
project managers use to measure and monitor cost
performance
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Source: Project Management Institute, Inc., A Guide to the Project
Management Body of Knowledge (PMBOK Guide) – Sixth Edition (2017).
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Source: Project Management Institute, Inc., A Guide to the Project
Management Body of Knowledge (PMBOK Guide) – Sixth Edition (2017).
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The United Kingdom’s National Health Services (NHS) IT
modernization program has been called the greatest IT
disaster in history. This 10-year program was created to
provide an electronic patient records system, appointment
booking, and a prescription drug system in England and Wales.
Britain’s Labor government estimated that the program
eventually cost more than $55 billion, a $26 billion overrun.
Problems included incompatible system features, arguments
among contractors about who’s responsible for what, and
lack of inputs by physicians, to name a few.
On September 22, 2012, government officials announced that
they were scrapping the program.
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Planning processes for cost management include planning
cost management, estimating costs, and determining the
project budget. There are several methods for creating cost
estimates, such as analogous, bottom-up, and parametric. A
cost baseline is a time-phased budget that project managers
use to measure and monitor cost performance.
See the text for examples of planning documents.
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